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Are recoveries based on wrongful termination taxed?
March 21, 2014
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Are recoveries based on discrimination taxed?

Yes. For a recovery to be excludable under §104, courts have determined that the underlying cause of action must be based upon tort or tort-type rights and that the resulting damages must be recovered on account of personal injuries or sickness that are physical in nature. Under this scheme, discrimination recoveries are not excludable because more often than not the act alone does not constitute a personal physical injury or physical sickness. As courts have noted, although there might be physical manifestations of harm or suffering or exacerbation of physical sickness, if the underlying claim was not for physical injury or sickness nor the settlement cite a physical injury or sickness it will not come under the §104 umbrella. However, sexual harassment accompanied by physical conduct would likely have a different result.